Buying a condominium is a lot like buying a house, but there are some significant differences.
If you are buying a new condo, you need to be aware that the condo cannot be officially registered until 65% of the condos are sold and occupied. This will have an implication for when you will need a mortgage.
For example, let’s suppose you buy a condo in a new 50 unit condo that is being built. You are the 27th person to buy and move into a unit in that building. If you go to your mortgage broker to ask for a mortgage, you are going to be turned down. And the reason is simple: you have moved into a building that is not yet 65% sold and occupied.
If you find yourself in this situation, which is quite common, you will find that the builder will either give you a month or two of “free” accommodations, or more likely, will charge you “rent” until he has sold more than 65% of the units. Once 65% of the units are sold, the condo corporation can then be registered and you can then put your mortgage in place.
So, when you go to buy a condo, find out what percent of the units are sold and what percent are expected to be occupied by the time you move in. These two numbers are going to be very important pieces of information when it comes time to apply for a mortgage.
Buying a condo means that you are going to have not only a mortgage payment each month, you are also going to have to make a monthly payment to the condo corporation. The condo corporation will use this money to look after the exterior and the common areas of your condo.
The important thing to know about condo fees is that the bank wants to know how much those condo fees are—for one simple reason. They are going to add one-half of your monthly condo fee to your mortgage payment. They will then use this figure to calculate how much of a mortgage they are willing to provide to you.
So, when you are looking at buying a condo, pay attention to the condo fees. The higher the monthly condo fee, the lower the amount of mortgage you will qualify for. For example, while you may qualify to buy a $300,000 condo with a $250 monthly condo fee, you may qualify for a mortgage of only $280,000 if your condo fee is $500/month.
If you are buying a unit in a condo that has been in operation for a while, your real estate sales rep will need to make sure that you Offer to Purchase has a clause that allows your lawyer and your mortgage lender to review the financial health of the condo corporation. The lender will want to make sure that you are not likely to face a huge increase in your condo fees in order to pay for some planned repairs to the common areas of your condo. In legal terms, the offer will require that your lawyer/lender has the right to a satisfactory review of the Status Certificate for the Condo Corporation.
If you are looking to purchase a condo, make sure that you alert your mortgage agent to this fact. This will allow the mortgage agent to incorporate the estimated condo fees into the request for a Pre-Approval, and he will then be able to give you a more accurate estimate of the amount of mortgage that you will qualify for.